In a two-part study commissioned by Forum New Economy, Charlotte Bartels and Carsten Schröder investigate the state of inequality and its drivers.

How unequal Germany really is

It's almost tragicomic: just a few days ago, researchers were reporting that inequality in the country is rising because of Corona - and now there's a counter-report: inequality is falling because of Corona. Basically, as is almost always the case when it comes to the big question of inequality in Germany. There is probably no other socially so emotive topic on which there are so many hasty attempts to sound the all-clear - and the truth seems so difficult to pin down. It was for this reason that we initiated a project a year and a half ago in which highly respected researchers, with international support, set out to find out what is really known - and what is not. The first two studies have now been completed - and can be downloaded below.

Anyone who reads them will quickly understand how it is possible for so many different statements to circulate on one and the same question of how unequal things are in the country - and yet there is one central finding.

There is just not always and everywhere inequality at all levels. Those who want to show that things are not so bad can therefore point to the fact that hourly wages have not been drifting apart for some time - or that the relative distribution of existing wealth has not increased for years. This is true, but it only reflects (selectively chosen) fragments of reality. Hourly wages have diverged drastically before, in the 1980s and 1990s - and the gap has not narrowed noticeably even in the post-2005 recovery (contrary to what the old trickle-down theories would have suggested). Is this really a reason to sound the all-clear? Meanwhile, monthly wages have drifted further apart anyway because many people work only part-time or in temporary jobs. The same goes for wealth: it has not drifted further apart in the top half since around 2012. The only reason for this is that the upper middle class has become richer thanks to rising house prices - the gap between the top and bottom half of the population has widened dramatically.

However you slice it, the problem is real. Even if the reality is not entirely black (or white). This makes it all the more exciting to see what researchers have discovered about the causes of this drifting apart.

Two-part Forum New Economy Study - On Inequality in Germany

Part I and II of this multi-year research project were carried out by Charlotte Bartels and Carsten Schröder from DIW and are now published as Forum New Economy Basic Paper No. 2 and Forum New Economy Working paper No. 7

Part I Forum New Economy Basic Paper

This paper has three principle aims. First, as there are many critical choices made when measuring inequality, this paper reviews the important methodological choices, including that of the reference unit (e.g., individual vs. households) and of the data source (e.g., administrative vs. survey data). Secondly, keeping in mind the first aim, the paper reviews the literature on income, consumption, and wealth inequalities. Thirdly, the paper uses an inter-temporally harmonized dataset, based on the German Income and Expenditure Survey (see Bönke et al., 2013), to provide a consistent time series of income, consumption, and wealth inequalities in Germany.

DOWNLOAD – PART I

Part II Forum New Economy Working Paper

We quantify the contribution of rental income to pre- and post-government equivalent household income inequality and of housing wealth to net wealth inequality between 2002 and 2017 in Germany by means of a factor decomposition. Further, we differentiate by region types (urban vs. rural, large vs. small municipalities) and federal states. We find that housing wealth, housing ownership and rental income particularly increased in large municipalities and urban areas; that rental income explains an increasing share of income inequality; and that the wealth inequality contribution of primary residence has increased over time, while the contribution of other real estate has decreased. Finally, we find an increasing rent load for the second quintile and the top quintile of the income distribution.

DOWNLOAD – PART II